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President Obama’s visit to India raises hopes for more significant nuclear cooperation with India but leaves lingering uncertainty for suppliers

President Barack Obama’s January 2015 visit to India began with the announcement of an agreement with Prime Minister Narendra Modi to facilitate cooperation between the two countries on civilian nuclear technology.

The agreement, announced 25 January, aims to clear the way for investment in India’s nuclear power industry, and to encourage U.S. and other foreign firms to supply and develop India’s nuclear power plants. The agreement also clarifies provisions in India’s controversial 2010 Civil Liability for Nuclear Damage Act (CLND), which many believe to be in tension with India’s planned accession to the Convention on Supplementary Compensation for Nuclear Damage (CSC).

While questions remain, an FAQ released by India’s Ministry of External Affairs (MEA) on 8 February explains the outlines of the agreement, as well as why the Modi government believes that the CLND comports with the requirements of the CSC and the Vienna Convention on Civil Liability for Nuclear Damage (Vienna Convention). Both treaties are administered by the International Atomic Energy Agency (IAEA) and channel liability for nuclear damage to the operator of a nuclear plant, as well as impose a strict liability regime for any harm caused, to the exclusion of all other remedies against an operator under national law. Two provisions of the CLND, sections 17(b) and 46, have been widely seen as at odds with these requirements: the former is commonly understood to allow operators to seek recourse from suppliers of equipment or materials in certain circumstances, while the latter is seen as preserving other remedies in tort.

MEA’s FAQ argues that this is not the case. While a more detailed “memorandum of law,” from the Indian Attorney General's office, may be forthcoming, MEA’s explanation, along with announced plans for the creation of an insurance pool, aims to provide foreign investors and suppliers of India’s civil nuclear industry with assurance that they will not be held liable for nuclear damage beyond the extent authorized by the CSC and the Vienna Convention. We understand that even Indian private sector companies that intend to supply Indian nuclear power plants have been seeking clarification on liability issues. MEA has also stated that there is no proposal to amend either the CLND or the 2011 CLND Rules.

Background

Major nuclear cooperation between the United States and other countries is governed by section 123 of the Atomic Energy Act of 1954 (42 U.S.C. § 2153), which requires countries to commit to nine nonproliferation criteria in order to enter into an agreement with the United States. Because India, which is not a party to the Treaty on the Non-Proliferation of Nuclear Weapons (NPT), could not meet these criteria, Congress passed the Henry J. Hyde United States-India Peaceful Atomic Energy Cooperation Act of 2006 (the Hyde Act) to enable the implementation of the 2006 Civil Nuclear Cooperation Agreement signed by President George W. Bush and Prime Minister Manmohan Singh.

The Hyde Act incorporated the policy goal of securing India’s ratification of or accession to the CSC. (Pub. L. 109-401 § 103(b)(3)(E)) The CSC allows states to accede if they can meet one of two requirements: they must either a) be a party to the Vienna Convention, or; b) they must declare that their national law complies with the provisions of the CSC Annex. (CSC Art. XVIII(1)) India is not a signatory to the Vienna Convention, and as of 2006, it lacked a national law establishing a civil liability regime for nuclear damage.

In September 2010, the CLND entered into force. On 27 October 2010, India signed the CSC, and MEA has indicated that India intends to ratify the CSC. India has expressed that when it ratifies the CSC, it will provide a summary of its position on why the CLND is compatible with the CSC’s provisions.

Operator recourse to suppliers

The CLND contains two provisions which have raised concern as to its overall compatibility with the CSC. Section 17, dealing with a nuclear operator’s right of recourse, reads as follows:

“The operator of the nuclear installation, after paying the compensation for nuclear damage in accordance with section 6 [of the CLND], shall have a right of recourse where -

such right is expressly provided for in a contract in writing;

the nuclear incident has resulted as a consequence of an act of supplier or his employee, which includes supply of equipment or material with patent or latent defects or sub-standard services;

the nuclear incident has resulted from the act of commission or omission of an individual done with the intent to cause nuclear damage.”

Sub-sections (a) and (c) mirror the provisions of Vienna Convention Art. X and CNC Annex Art. 10. However, sub-section (b) has been read as expanding the situations in which an operator could seek recourse from a supplier beyond those permitted by the CSC. It is this concern which MEA seeks to resolve in its FAQs, and in the underlying memorandum of law.

In question 8, MEA explains the rationale for section 17(b)’s compatibility with the CSC. This sub-section relates to “actions and matters such as product liability stipulations/conditions or service contracts [which are] ordinarily part of a contract between the operator and the supplier.” Thus, “[i]ts operationalization will be through contract conditions agreed to by the operator and the supplier.”

Such a reading indicates that MEA views section 17(b) not as a stand-alone provision expanding the scope of an operator’s right of recourse, but as a further elaboration on and specification of section 17(a). Because Art. 10(a) of the CSC Annex does not restrict the contents of contracts between operators and suppliers, MEA argues that section 17(b) is a permissible elaboration of this provision. Furthermore, it notes that “the India Nuclear Insurance Pool (discussed below) has been instituted to facilitate negotiations between the operator and the supplier concerning a right of recourse by providing a source of funds through a market based mechanism to compensate third parties for nuclear damage. It would enable the suppliers to seek insurance to cover the risk of invocation of recourse against them.”

Exclusivity of remedies

In addition to section 17(b), suppliers have raised concerns about the potentially broad scope of section 46, which reads as follows:

“The provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being in force, and nothing contained herein shall exempt the operator from any proceeding which might, apart from this Act, be instituted against the operator.”

This has been interpreted as preserving remedies in tort against a plant operator. However, MEA argues that section 46 is a routine clause, similar to those in other regulatory statutes, which is “provided routinely to underline that other relevant laws continue to be operable in their respective domains.” MEA, in questions 12 and 13, relies on the legislative history of section 46 to come to the conclusion that it does not extend to suppliers, nor does it enable potential claimants to seek relief in foreign courts. Amendments to include suppliers in section 46 and to introduce the jurisdiction of foreign courts were defeated in parliament during the debates over the CLND, and as MEA argues, “[a] provision that was expressly excluded from the statute cannot be read into the statute by interpretation.”

Insurance pool

The final component of the agreement is the development of an insurance pool with a liability cap of 15 billion rupees (approximately US$250 million). The CLND provides that the maximum liability for each nuclear incident shall be 300 million Special Drawing Rights (SDRs) (approximately 26.1 billion rupees, or US$420 million), as required by Art. 4(1)(a) of the CSC Annex. The government has pledged to bridge the gap between the 15 billion rupees covered by the insurance pool and the 26.1 billion rupees of maximum liability provided for by the CLND. MEA envisions three tiers of policies, with differing premiums for each:

MEA states that premiums will be based, in part, on a probabilistic safety assessment study carried out by the Department of Atomic Energy, and that insurance premiums are expected to be comparatively low. The government will make available 7.5 billion rupees to the pool for the first few years until the participating insurance companies are able to maintain it on their own.

Next steps

In sum, the MEA’s FAQs rely on narrow interpretations of the CLND’s problematic provisions in order to ensure compliance with the CSC. The U.S. State Department has stated that the U.S. government is satisfied that the Indian government’s interpretation of the CLND is a credible one from a treaty standpoint. Accordingly, if India ratifies the CSC and issues an accompanying statement as to why the CLND is consistent with the CSC, the U.S. government would not second guess the Indian government’s position. Nevertheless, it is understood that suppliers still must make decisions from a commercial standpoint in individual transactions whether they have adequate protection from nuclear liability.

Interpreting section 17(b)’s right of recourse to apply only to contractual liability, when viewed in light of the insurance pool scheme, suggests two things. First, India aims to remain within the letter of the CSC’s requirements by only imposing supplier liability via contract. Second, because India’s sole nuclear power plant operator, the Nuclear Power Corporation of India, is state-run, supplier liability may be a largely non-negotiable condition of any supplier contract.

Further clarification of and legal justification for the government’s interpretation of the CLND may be forthcoming in the announced memorandum of law or in a statement accompanying India’s expected ratification of the CSC, though no timetable has been given for either one. Likewise, India has yet to set a definite time for ratification of the CSC, though the Modi government has expressed its intention to ratify the Convention. While the recent announcements in the wake of President Obama’s visit to India offer welcome clarity as to how India aims to come into compliance with the CSC, it is unclear if the proposed insurance pool alone will be enough to convince potential suppliers and investors to voluntarily accept the risk of supplier liability.

It has been reported in the press that at least some suppliers intend to begin work on projects in India in the near future, before all the details of the insurance scheme and the interpretation of the CLND have been finalized. The completion of this work could be conditional upon ultimate resolution of insurance and liability issues, which will require the Indian Attorney General’s office to issue the promised memorandum, and the resolution of any legal challenges that might follow. While the opportunities for foreign nuclear suppliers in India look better now than at any point since 2010, the Modi government will have to resolve lingering doubts as to how it will handle liability issues before it can expect suppliers to jump in with both feet.

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